Roubini Says ECB Has Room to Ease Credit While Weakening Euro

The European Central Bank has room
for action to spur the euro-area economy and could at the same
time weaken the currency, according to New York University
Professor Nouriel Roubini.

“You need to have some degree of monetary easing and
credit easing, possibly negative deposit rates, to weaken the
euro, to ease financial conditions, to jump start credit
growth,” Roubini, the co-founder of Roubini Global Economics
LLC, said in an interview with Bloomberg Television in Rome
today. “I don’t expect action in this direction very soon, but
I would say some things the ECB can do are not controversial.”

ECB President Mario Draghi put investors on a month’s
notice on Feb. 6 for further monetary stimulus, saying policy
makers need more information on the “complex” economic picture
before taking any decision. Economists surveyed by Bloomberg are
divided on whether action will be taken in March as an improving
economic outlook is undermined by slowing inflation.

Roubini said as recently as October 2012 that Greece would
probably depart the common currency as a sovereign-debt crisis
fueled speculation the euro area would fracture. He said last
month that the situation in the currency bloc has improved and
the risk of a breakup has receded.

Draghi remains cautious about the euro area’s economic
prospects. Gross domestic product expanded 0.3 percent in the
fourth quarter, beating economists’ estimates. Yet inflation
slowed to 0.7 percent in January, matching the four-year low in
October that spurred a surprise November rate cut. Unemployment
is close to a record high and bank lending is shrinking.

Currency Strength

Roubini said the Frankfurt-based ECB also needs to consider
the strength of the euro. The currency has climbed 3 percent
against the dollar in the past six months, threatening to curb
the competitiveness of exporters in the 18-nation bloc. Policy
makers have repeatedly said the exchange rate is not part of the
ECB’s mandate.

“The value of the euro is too strong,” Roubini said.
“Additional monetary easing, conventional and unconventional,
could weaken the euro.”

Roubini said the ECB will eventually have to consider
direct asset purchases, similar to the quantitative easing by
the U.S. Federal Reserve, the Bank of England and the Bank of
Japan. Purchases of government bonds by the ECB have proved
controversial in the past, even if policy makers stress that
they can be carried out without violating European Union laws.

“The ECB is still several quarters away from considering
seriously that option,” Roubini said. “But you never know that
maybe by the end of the year that option, that I think is one of
the useful things that the ECB could do, may eventually
materialize.”